Editor’s note: The program which was once suspended is still available through Labor Day, 2009.
Yesterday the U.S. Senate passed a War funding appropriations bill that paradoxically included a piece of legislation popularly referred to as the “Cash for Clunkers” program.
In an earlier article where Flexo pointed out the weirdness of including “guns in national parks” legislation in a law about regulating the credit card industry, reader TJJ added a comment alerting us to the “Clunkers” program being inserted into the War funding bill. TJJ was right, and so here we are. Lawmakers attach irrelevant legislation as part of larger, more popular legislation.
So that’s the first thing that doesn’t thrill me about the Clunkers program. The second is the name. A “clunker” is a car that doesn’t work anymore. Yet, this program only applies to used cars that are still in drivable condition.
Image of an actual clunker courtesy of Mike McCaffrey
More importantly, I think it offers too much for too little. There’s a $3,500 credit for trade-ins that improve your mileage by 4 MPG, and $4,500 for a 10 MPG upgrade.
I would’ve liked to see a program that required the new car to get at least 30 MPG, a number high enough to actually make some kind of impact on our dependence on foreign oil. Maybe I’m too accustomed to getting 45 MPG, but I view mileage over 30 as easily achievable with any kind of car, and it seems ridiculous to entice someone upgrading from, say, 14 MPG to 24 MPG.
So, much like the new energy efficiency tax credits, I think this is a case where if you were already considering trading in your car for something that requires fewer trips to the gas station, there’s never been a better time.
I’ve said it before, but here it is again: even if you don’t agree with a new law, if it makes sense for you to save some money under it, you might as well take advantage of it.
How the ‘cash-for-clunker’ plan would work,James R. Healey, USA TODAY, June 10, 2009
According to a new study, employees who use iPhones are statistically wealthier, younger, and more productive at work that their counterparts who use other smartphones. 32,000 people were surveyed and placed into categories based on the type of mobile phone they own.
They were then evaluated based on income, the cost of their monthly cell phone bills, how often they use their phone access the internet, their age, and a number of other metrics.
According to the study, iPhone users are more likely to remain connected to their employers’ networks, leading researchers to conclude that this population is more productive.
Regardless, buying an iPhone won’t make you a better person, nor will it directly increase your income. I find it hard to believe that owning an iPhone, or any other device, would be a trigger to move an individual from one demographic (lazy, low-income, old) to another (productive, wealthy, young). The study only looks for correlations, so it could easily be that wealthy individuals are more likely to spend more money for a more expensive device.
Unfortunately, the details of the study are accessible only after paying $750, something I am not prepared to do for a survey that might not have any solid conclusions anyway.
Photo credit: John Larsson
New study shows iPhone users to be in a class by themselves, Neil Hughes, Apple Insider, June 12, 2009
Working iPhone Owners Tap The Mobile Internet, Ted Schadler, Forrester, June 11, 2009
The Cool Surge portable air conditioner claims, in full-page newspaper advertisements that look like newspaper articles, to reduce the temperature of an average room by “up to ten degrees” using as much energy as a 60-watt lightbulb. Other air conditioners often use 500 watts or more, so it sounds like this device might be worth the cost that is double the price of a small window air conditioner.
Consumer Reports had difficult dealing with the company that sells the units. The organization’s testers had no problem ordering the units from the website for about $300 each, but when they attempted work with a customer service representative over the phone to order a unit, they ran into some problems.
But when we later called the Web site’s order line anonymously, we were told we’d have to pay $49 per unit for shipping, or nearly $100 if we had opted for the company’s two-for-one offer. Another call using a different number listed in a Cool Surge newspaper ad yielded yet another price of $148 per unit — plus $49 shipping — for versions with “slight cosmetic damages.” The two-for-one offer had apparently ended.
Furthermore, the testing revealed the air conditioner did not quite perform as expected. When Consumer Reports tested these claims listed above, they found that the Cool Surge cooled an average room, even in an environment most suited for success, by only two degrees.
Here is the video from Consumer Reports. [click to continue…]
After General Motors’ bankruptcy, there is no question that the automobile industry will change significantly. With less competition and higher costs of production, prices will increase. It will be more difficult and more expensive to find parts and service for some vehicles. The selection of vehicles will be more limited.
Perhaps more brands will opt to adopt the sales philosophy held by Saturn and Scion: the price advertised is the price you pay. At first, the concept seemed like a scam. You always negotiate car prices, but with Saturn’s entrance to the market, the manufacturers or dealers said, “Don’t negotiate with us anymore; it’s our price or no sale.”
This method, where cars were sold more like a commodity than a luxury, proved to be quite popular, especially with younger individuals who do not have haggling experience. Taken to the step beyond prix fixe voiture, cars could be sold “off the shelf” in retail stores rather than dealerships. According to US News & World Report, at least one retail outlet in Mexico sells cars in addition to other typical retail products, and the United States may follow.
Just about the only place to buy a car these days is a traditional dealership, thanks largely to powerful franchise laws in most states that keep other competitors at bay. But as automakers slash their retail networks, dealers are losing their clout. For new offerings such as minicars, and perhaps cheap Chinese imports, a big showroom with a dedicated sales staff might not even make sense. That could open the way for retailers like Costco or Wal-Mart to start selling cars.
This may be the future of automobile sales: View the floor models in an open area of the massive store, talk to the salesperson, and as if the product were a high-definition television, let the salesperson try to talk you into the extended warranty and other options. Wait for him to bring the car from the stock garage in the back to the cashier, where you pay the price on the sticker. Perhaps you’ll put your purchase on your credit card (store credit will be offered) and earn loyalty points.
I expect most popular brands, like Honda and Toyota, might not accept this model. It may be suitable for lower tier brands and low-cost models not yet popular in the United States. The New General Motors may see this sales avenue as the path back to profitability.
Would you prefer to buy cars from retail stores like Wal-Mart or Costco if this new sales philosophy reaches the United States?
How buying a car is going to change, U.S. News & World Report, June 4, 2009
Photo credit: schoschie
The economy is not out of the woods yet. Companies are still laying off employees; the automotive industry is just getting started. For many families, the pressure is on to find ways and make decisions to save more money in order to prevent going into or going deeper into debt.
The situation presents a good opportunity to review spending across the entire budget, optimize income, and decide where to draw the line between necessities and luxuries, true needs and wants. The opportunity exists to choose poorly, to cut back in spending in ways that seem to make sense in the short term but may be harmful later on. Some struggling families have no choice but to focus on the short-term, immediate survival, but these mistakes should be avoided whenever possible.
Delaying visits to the doctor and dentist, especially for children. If you have no insurance or can’t afford the copyaments or coinsurance, you may feel like you have no choice to ignore your “regularly scheduled maintenance” appointments with health professionals. I admit that I don’t visit my doctor for check-ups as often as I should, regardless of the cost. But if you put off these visits now to save money, it could end up costing much more in the long run if health problems — some that you may not know about — are allowed to grow. A few years of skipped dental hygienic appointments, saving anywhere from a hundred to a thousand dollars, could result in several thousands of dollars in corrective work.
Choosing cheaper, poorly-made products. When I was younger and had very little net income to work with, if any, I tried to save money on clothing by shopping where clothing was the least expensive. After a few years, I realized how the cheap clothing I was purchasing, for example jeans from Old Navy costing ten dollars, did not last more than a year. I could spend twice as much at a store that offers better quality clothing and the purchases would last five to ten years.
It’s similar with cars. I drive a Honda Civic now. It was comparatively inexpensive when I purchased it, but I haven’t had any problems until this week when the fuel door stopped functioning. That is apparently a common problem for Civics, and it was not free to have fix. I chose to get it repaired because I am willing to spend more money rather than do it myself, do it wrong, and cause more problems. But rather than purchasing a Civic, I could have purchased a similar car from a different, lower-quality maker and saved money. But according to reviews and statistics, I would have spent more money to maintain any number of other cars due to lower levels of reliability.
Consumer electronics are similar. Cheaper products might save money for the initial purchase, but if the electronics must be replaced or returned for service after the warranty has ended, you will end up paying more.
Buying products in smaller packages. If you have six dollars in your wallet and you need to buy toothpaste, you can buy a package that will last six months. If you only have three dollars in your wallet, however, the only option to you is a smaller tube that will only last two months. At the time of purchase, you’re saving money by buying a smaller tube, but the price per ounce is going to be better if you have the six dollars to spend. Sometimes you don’t have a choice, but smaller packaging is not the best way to save money.
This is true for bulk purchasing, as well. When the economy is strong, people are more likely to buy in bulk, with an eye towards the future. But if you do not know where your next pay check is coming from, focus shifts to the short-term.
Opting to enroll in store credit cards. It is tempting to open an instant credit card in order to receive 15% off your purchase, a common offer in department stores. While the immediate discount sounds nice, by adding a credit card to your arsenal, likely a credit card with a high interest rate, you could end up far exceeding the price you would pay if you chose not to open the credit card. That is what the credit card companies are counting on.
It is not always possible to avoid the decisions that hurt your wallet more later than they do now. But when it is possible, or if you can find a way to cut back in other areas of spending that do not have long-term effects, you will have more opportunities to make the better decisions as described above.
Photo credit: bcmom
According to early news reports, General Motors will file for bankruptcy one hour from now, at 8:00 am Eastern Time this morning. GM was officially born as a company on September 16, 1908. Its long history is a reminder that no company will survive forever regardless of its performance; like humans, corporations are mortal and if you want to see one fail, you just have to wait long enough.
Bankruptcy isn’t truly death, however. General Motors has the opportunity to restructure, shedding its poor performing businesses. Thanks to a massive government bailout, GM can renegotiate with its creditors. The government will own 60%, a controlling share, of the new General Motors. With this massive restructuring, you can expect a new GM that will look and and operate quite differently, and the changes will affect many different people throughout the world. Here is how GM’s bankruptcy might affect you.
General Motors employees and retirees
By the end of next year, General Motors predicts it will cut 20,000 jobs. 2,400 dealerships and 12 plants across the country will be closed. This is after the company has been reducing its staff consistently throughout the decade. 300,000 employees at dealerships will be affected by the cuts.
General Motors retirees will see their benefits, such as health insurance, reduced.
Suppliers and other companies that rely on General Motors will also be affected. There will be job reductions throughout the entire automotive industry.
General Motors vehicle owners
Not much will change for General Motors’ customers. Warranties will continue to be valid, with a government guarantee for back-up insurance. Maintenance and other service might be more expensive with fewer parts suppliers and dealerships available to provide competition in the marketplace.
GM will eliminate a number of its brands to focus on the vehicles that show a potential for profit. The company will have to be more aware of the marketplace and remain as flexible as possible to respond to market demand. This could mean some new, more fuel efficient cars if this remains a priority. With the Administration pushing for tougher regulations in the automotive industry, this may be a necessity regardless of popular interest.
General Motors stockholders and bondholders
If you own GM’s stock, you have already been affected by the anticipated bankruptcy. The stock price, currently trading at $0.75 per share, has fallen 95.74% over the past year. Any investment held in General Motors will only be recovered if the restructuring is a success and the government relinquishes its equity.
During the bankruptcy, GM’s stock will likely be unavailable to trade. Standard & Poors will likely remove General Motors from the S&P 500 and the same fate is predicted for GM’s inclusion in the Dow Jones Industrial Average. The company was already removed from the S&P 100 last year. This presents one drawback of index investing: failing companies are often represented as thee value of their shares fall to zero, but fast-growing companies, which would normally balance out those that fail, are not picked up by the index until they have already experienced their greatest growth.
If you invested in a corporate bond from GM, you will lose your investment. Your bond rights will be replaced by a portion of stock in the new General Motors.
Overall thoughts for the consumer
With any luck, General Motors will emerge from bankruptcy and from government control a leaner company ready to compete in the automotive industry. General Motors’ current state shouldn’t be a reason to drive potential customers away from their vehicles. GM’s cars should continue to be evaluated on their performance, safety features, fuel economy, cost to own, and pleasure, just like any other vehicle produced by any other corporation.
I have been helping my girlfriend shop for a car during the past couple of weeks, and we’ve noticed in the dealerships we have visited that there is very little in stock. Lots are half empty, and this does not apply to General Motors only, or even only “domestic” automotive makers. The prices for what we can find are somewhat competitive right now, but I expect prices to rise over the next few months as the industry reacts to the loss of jobs, suppliers, and competition.
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